Question: A CPA was engaged by Alpine Corp. in 2008 to examine its books and records and to make whatever corrections are necessary. An examination of

A CPA was engaged by Alpine Corp. in 2008 to examine its books and records and to make whatever corrections are necessary. An examination of the accounts discloses the following.

(a) Dividends had been declared on December 15 in 2005 and 2006 but had not been entered in the books until paid.

(b) Improvements in buildings and equipment of $4,800 had been debited to expense at the end of April 2004. Improvements are estimated to have an 8-year life. The company uses the straight-line method in recording depreciation and computes depreciation to the nearest month.

(c) The physical inventory of merchandise had been understated by $1,500 at the end of 2005 and by $2,150 at the end of 2006.

(d) The merchandise inventories at the end of 2006 and 2007 did not include merchandise that was then in transit and to which the company had title. These shipments of $1,900 and $2,750 were recorded as purchases in January of 2007 and 2008, respectively.

(e) The company had failed to record sales commissions payable of $1,050 and $850 at the end of 2006 and 2007, respectively.

(f) The company had failed to recognize supplies on hand of $600 and $1,250 at the end of 2006 and 2007, respectively. The retained earnings account appeared as shown below on the date the CPA began the examination.

A CPA was engaged by Alpine Corp. in 2008 to

Instructions:
1. Journalize the necessary corrections.
2. Prepare a statement of retained earnings covering the 3-year period beginning January 1, 2005. The statement should report the corrected Retained Earnings balance on January 1, 2005, the annual changes in the account, and the corrected Retained Earnings balances as of December 31, 2005, 2006, and 2007.
3. Set up an account for retained earnings before correction, and post correcting data to this account for (1). Balance the account, showing the corrected retained earnings as of January 1,2008.

Account: RETAINED EARNINGS Balance Date Item Debit itCre dit Debit Credit 2005 Jan. Balance Dec. 3 Net income for year 2006 Jan. 0 Dividends paid Mar 6 Stock sold excess over par Dec. Net loss for year 2007 Jan Dividends paid Dec. Net loss for year 40,500 49,500 9,000 7,500 5,600 7,500 42,000 58,000 52.400 16,000 44,900 38,700 6,200

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